Luxembourg devises strategies to sustain dominance in fund tokenisation sector
**Luxembourg Leads the Way in Tokenized Fund Shares**
Luxembourg, a European hub for blockchain and fintech innovation, has established a robust legal framework for the tokenization of financial assets, including fund shares. The latest iteration of this legislation, the Blockchain Law IV, enacted in December 2024, further strengthens Luxembourg's position as a global leader in digital securities[1][3].
The Blockchain Law IV accommodates public blockchain issuances, allowing investors to hold digital securities directly in their wallets, similar to Germany's eWpG[3]. It also introduces the concept of a single control agent responsible for maintaining the issuance account, tracking the chain of title for securities, and reconciling issued securities[3].
Luxembourg's regulatory environment is influenced by EU laws like MiFID II and MiCA, which provide a framework for the tokenization of investment funds and ensure compliance with broader European financial regulations[2].
The combination of Luxembourg's Blockchain Law IV and EU regulations is expected to foster greater adoption of tokenized fund shares, providing a supportive and innovation-friendly environment. However, the high costs associated with meeting regulatory and technological standards may pose barriers for smaller firms[2].
As investors increasingly seek digital solutions for financial services, Luxembourg is well-positioned to attract investment and achieve long-term growth in the financial sector. The country's proactive stance on blockchain and fintech innovation is critical to maintaining its competitive edge[2].
Tokenization is anticipated to improve operational efficiency and profitability for fund managers while meeting evolving investor needs. Conducting impact assessments can help fund managers evaluate the potential benefits of tokenized assets[2].
Notable trends in Luxembourg include the emergence of secondary markets for fund shares/units, a functionality which would notably benefit semi-liquid (retailised) alternative investment funds[4]. Since a number of years, it has been possible to issue Luxembourg fund shares and record and transfer ownership of such fund shares by relying on DLT[5].
Asset managers are currently operating tokenized investment funds in Luxembourg, either experimenting with the technology or via real-life use cases[6]. Another trend will be funds investing in digital assets, with no significant regulatory hurdles for digital financial instruments or crypto assets[6].
The new Blockchain 4 Law, which entered into force in 2025, creates a new simplified issuance process for dematerialised securities and introduces the role of control agent[7]. The scope of institutions that can act as control agent is much broader under the Blockchain 4 Law, encompassing settlement organisations, banks, investment firms, duly passported EU banks and investment firms, which can benefit asset managers with an existing EU presence[7].
The Grand Duchy's legal framework permits the use of distributed ledger technology (DLT) in all relevant fund lifecycle events, including issuance, recording and transfer of ownership, pledging, and trading of fund shares[8]. The CSSF has clarified that transfer agents may keep a fund's unit/shareholder register using DLT[8].
Franklin Templeton issued the first fully tokenised UCITS in Luxembourg earlier this year[9]. Luxembourg's popularity as a European jurisdiction for fund tokenisation is due to a robust regulatory framework, a mature ecosystem of service providers, and the openness to innovation of the country's financial sector regulator, the CSSF[9].
Considering the popularity of semi-liquid alternative funds, we would expect DLT-based secondary markets to be one of the major trends of the coming years[4]. Securities accounts, which are often used to record and transfer ownership of securities, can be kept using DLT[5].
In conclusion, Luxembourg's legal framework, particularly Blockchain Law IV, positions the country as a leader in the tokenization of financial assets, including fund shares. The future trends indicate a strong focus on innovation, regulatory compliance, and operational efficiency, which are crucial for maintaining Luxembourg's status as a global hub for digital securities.
[1] [https://www.kpmg.lu/en/news-and-insights/articlespublications/Pages/luxembourg-blockchain-law-iv-enacted.aspx] [2] [https://www.kpmg.com/lu/en/issuesandinsights/articlespublications/pages/luxembourg-tokenized-funds.aspx] [3] [https://www.pwc.com/lu/en/services/financial-services/publications/assets/blockchain-law-iv-luxembourg.pdf] [4] [https://www.pwc.com/lu/en/services/financial-services/publications/assets/luxembourg-funds-digital-financial-instruments.pdf] [5] [https://www.kpmg.com/lu/en/issuesandinsights/articlespublications/pages/luxembourg-tokenized-funds.aspx] [6] [https://www.kpmg.com/lu/en/issuesandinsights/articlespublications/pages/luxembourg-tokenized-funds.aspx] [7] [https://www.kpmg.com/lu/en/issuesandinsights/articlespublications/pages/blockchain-4-law-luxembourg.aspx] [8] [https://www.kpmg.com/lu/en/issuesandinsights/articlespublications/pages/luxembourg-tokenized-funds.aspx] [9] [https://www.kpmg.com/lu/en/issuesandinsights/articlespublications/pages/luxembourg-tokenized-funds.aspx]
Investors can leverage technology to invest in business through tokenized fund shares in Luxembourg, a global leader in digital securities, due to its innovative and supportive regulatory environment for fintech and blockchain innovation. Asset managers in Luxembourg are embracing tokenization to enhance operational efficiency, profitability, and compliance with evolving investor needs.
